Concerned about your retirement and the Trade War? Annuities can help!

One of the primary concerns for retirees is having enough retirement income to cover their living expenses once they are retired. Due to the unpredictability of market returns and interest rates, many are turning to annuities, contracts between an individual purchaser and an insurance company.

This contract guarantees that the insurer will provide regular payments in exchange for a premium to the insured immediately or in the future. An annuity’s main feature is its ability to provide a stable flow of funds, which can be extremely valuable for retirees seeking confidence. Before purchasing an annuity, individuals must consider the following strategies to help maximize their retirement income, as each may impact their situation.

1. Timing the purchase

Purchasing an annuity right at retirement may seem logical, but delaying might be more beneficial. One strategy is to adopt laddering or buying immediate annuities over many years instead of purchasing one large annuity at retirement. This approach helps preserve assets against longevity and interest-rate risks as rates vary.

2. The type of annuity

Assessing the type of annuity is crucial. Immediate annuities start paying income immediately, making them suitable for retirees who need instant cash flow. On the other hand, deferred annuities accumulate savings over time before beginning payments. Fixed-indexed annuities credit interest based in part on the performance of an index, such as the S&P 500, but they do not directly invest in the index. Fixed annuities pay a guaranteed rate of return. The selection of which type of annuity to purchase should depend heavily on individual needs and risk tolerances.

3. Delaying the payment start date

Another strategy involves utilizing annuities as longevity insurance. By pushing the start date of annuity payments off into the future, often referred to as a deferred income annuity or longevity insurance, retirees can ensure they receive payments even if they live longer than expected. This way, the annuity is a safety net for potential unexpected expenses in later life or for covering long-term care (LTC) costs.

4. Inflation riders

Incorporating an inflation rider in your annuity is another key strategy. Over time, inflation can erode purchasing power and mitigate the real value of your annuity payments. Including an inflation adjustment feature can help offset the rising cost of living over the annuity’s lifespan. It’s essential to note that riders are purchased at an additional cost, therefore requiring an understanding of how the premium is impacted.

5. Insurance company rating

Moreover, it is vital to consider the financial strength of the insurance company issuing annuities. Annuity contracts are only as secure as the health of the company backing them. Therefore, choosing a reputable company with strong financial ratings is critical.

6. Systematic withdrawals

Finally, exercise systematic withdrawals – taking out the exact amount annually or monthly can help manage retirement income. This strategy has a twofold advantage: it ensures a steady income and, when done efficiently, can also provide tax benefits.

While these strategies can be beneficial, it is pertinent to remember that annuities are complex products that may not be suitable for everyone. The fees associated with annuities can be high, surrender charges can hinder flexibility, and the income from annuities may be taxable.

In conclusion, while annuities can provide a steady income stream during retirement, practical usage requires careful consideration, strategic planning, and guidance. By following the outlined strategies and consulting with financial and insurance professionals, one can manage the potential benefits annuities offer.

SWG4394310-0425a Annuity guarantees are subject to the claims-paying ability of the issuing insurance company. Annuities are complex products and may not be suitable for all investors. Always consult a qualified financial and insurance professional before making any decisions. This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives.